Good Intentions, Gone Wrong

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January 15, 2016

Charitable Contribution Disallowed – on a Technicality

Attempting to validate a deduction on a tax return after the fact is not an easy task.  In a recent Tax Court case, the Court denied a charitable contribution deduction on a tax return for a conservation easement that was submitted without the contribution’s appraisal.

The taxpayers in the aforementioned case owned a home in a US National Park Service designated historic district. The taxpayers had their property certified as an historic structure and intended to donate the façade of their house to Landmarks, a charity whose mission is to protect the character of historic properties. Such a donation is permitted under IRC 170(h), provided that certain criteria are met, one of which is to attach a qualified appraisal to the tax return as stated in IRC 170(h)(4)(B)(iii).

While the taxpayers did obtain an appraisal at the time the donation was made, they admittedly failed to attach it to the tax return. Due to their error, the Court disallowed the charitable contribution deduction. Furthermore, the Court also sustained the assessment of the 40% accuracy-related penalty for grossly misstating the value of the charitable contribution; as they concluded that the taxpayers did not exercise reasonable care in assuring that their tax return was complete.

Circumstances like this are not easily fixed when documentation is provided after-the-fact. With the ever-increasing complexity of US tax laws, having knowledgeable guidance from your professional services team is paramount.

For questions on this matter or other issues affecting your tax situation, please contact Aronson’s Tax Controversy Practice Lead Larry Rubin, CPA, at 301-222-8212.